Weekly Economic Update - Going For The Hat Trick

New home sales in November surprised everyone, surging almost 17% after what had been a lackluster late summer and fall. While the 657,000 unit annualized estimate was downgraded to 599,000 in this week’s Census Bureau report, December sales scored another unexpected hit. Sales were at an annual rate of 621,000, a 3.7% gain from the revised December number.

The rate is still trying to catch up with year-earlier numbers; they were 2.4% lower than in December 2017, but the year did not end badly. A total of 622,000 newly constructed homes were sold over the 12 months compared to 613,000 in 2017.

Despite the recent pick-up in sales, inventories are holding up well. There were 344,000 new homes available for sale at the end of the year, a 6.6-month supply and a 20% increase from a year earlier. A six-month supply is considered a balanced market. As usual more than half the available homes were located in the South, but the West had nearly 100,000 single-family properties for sale.

There will be another new home sales report next week, this one for January, as the Census Bureau continues to catch up after the partial government shutdown. Fingers crossed for a hat trick.

Anticipating Affordability

CoreLogic’s Home Price Index for January posted a 4.4% annual appreciation rate, precisely two-thirds the rate of a year earlier, and the Census new home report showed lower median and average sales prices. Black Knight’s Mortgage Monitor which also covered the December market, focused on what the price deceleration means for a number of large metropolitan areas in the West.

The company looked at Seattle and the ten largest markets in California and found only two, Bakersfield and Stockton, with higher appreciation rates than the national average. The other eight California cities have cut their appreciation rate by at least half over the last 10 months and for five the slowdown was 70% or more. Seattle has dropped from several years of double-digit increases to 3.1% and it, as well as San Jose and San Francisco, are now in the bottom 25% of all markets nationally. San Jose has gone from a rate over 20% in 2017 and early 2018 to a fraction of a point.

California remains the least affordable state in the country but the recent pull-backs in interest rates and softening home prices have returned the national affordability level back to where it was early last year, and well below long term levels in the late 1990s through early 2000s. Black Knight concludes that continued reductions in appreciation may mean growing affordability on the West Coast as well.